by Karl Denninger
Rhetorical question - Did Bernanke or Paulson - or their friends - plant that little rumor in an attempt to play "booster rocket" to the markets yesterday? Maybe that's why the SEC never seems to give a ****? Hmmmm...
Morning comes, and right on queue, at 5:45, the futures take off. And this time, the Yen/Dollar cross lags the futures acceleration. Ah, the difference between cause and effect!
News? No. Salivation. Pavlov's Dog thinks he's going to be fed at 7:00 CT, 8:00 ET, when the "surprise discount rate cut", as allegedly "leaked" yesterday, occurs.
Oh, and this morning? Bob*****es-in-mouth-ani on CNBull**** actually says the rumor was ridiculous. Well, he's right. The real question is why didn't Mr.*****ssssssani make that statement YESTERDAY while the "bulls were stampeding" in an attempt to actually report the truth and perhaps deflate the stupidity?
The answer is obvious of course - CNBull**** isn't "reporting" or "news" - its entertainment TV, and the more hype, cock and bull they can PROMOTE, even when it comes down to cheering FELONIOUS BEHAVIOR, the better they think things are!
I want to know when they're going to cheer some RAPES, some MURDERS and some little old ladies getting robbed blind, because the latter is exactly what's going on here.
Now to be fair earnings came in reasonable this morning. But I wouldn't call them "good" - just not a wipe-out. And that should be worth, well, nothing; the S&P is still on track to produce a negative earnings "growth" print for the first time since the recession in the Tech Bust.
And some - like MBI's - were terrible:
"The net loss was $36.6 million, or 29 cents a share, compared with net income of $217.9 million, or $1.59, in the year-earlier quarter. Operating earnings were $1.52 versus $1.55; adjusted operating profit was $1.43 a share against $1.37. A survey of analysts by Thomson Financial estimated the quarter's earnings at $1.59 a share."Oh boy.
Cummins Engine (CMI) missed big - $1.84 .vs. estimates of $1.93, and was instantly pummelled. They've been massively overvalued, just like a lot of the other "everything is wonderful so long as it goes to China" stocks. Psst - higher input costs (raw materials) + slow US sales = falling profits. Duh.
Dow Chemical (DOW) posted lower than expected profit, citing high input costs. They're also raising prices. That wouldn't lead to a topline (and bottom line) change in inflation, would it? Naw.......
The latest trucking company to report crap earnings was Old Dominion; that makes four-for-four. Pretty much a sector bust, and oh by the way, the railroads are a bust too - yeah, I know, BNSF reported good earnings, but look at the car tonnage carried and its down - 5% or so. Those are recessionary numbers, not "a bit soft".
Where's all this coming from? Simple - THE DOLLAR. Duh. It continues to fall like a stone, being particularly weak this morning. How's this chart look?
Thar she blows! I'd make comments about a ski run but it appears to me that base jumping is more appropriate....
This morning we got the first analyst ratchet-down of fourth quarter estimates - only for the financial sector (so far), but heh, this is the "moving of the ball" that I predicted would start to happen.
Watch for "The Bulls" to get really, really nervous and start edging ever-closer to the door as they start to have that sink into their consciousness.
The whole reason we're still trading within spitting distance of the highs is that the 4Q profit growth estimates have remained over 10% - even though they were over 10% for 3Q and now we know that reality is going to be flat at best and most likely negative!
As 4Q estimates ratchet down the P/E/G ratio of the S&P heads north, and since it is already at "maximum reasonable levels" any material deterioration results in the "SELL" button becoming not only illuminated but flashing with increasing urgency!
Now let's talk about Paulson's scheme known as "M-LEC" - a scheme that in my view ought to be resulting in indictments rather than accolades:
"'Continuing to mask transparency by means of rearranging risk without actually offloading or recognizing the true value of that risk is not going to help anyone,' said Joseph Mason, an associate professor of business at Drexel University in Philadelphia and a former financial economist at the Office of the Comptroller of the Currency."
Do you think that gent has some credibility? OCC eh? I'd say so. Never mind that Buffett thinks this whole thing is total bull**** (he spoke of trying to turn toads into princes - that'd be "fraud" by the common, no-nonsense use of language, right?) in that same referenced article.
And let's expand on the fraud game discussion yesterday.
Let me be clear - the Fraud in the system today that I was discussing isn't illegal. Oh, its fraudulent all right, but its not felonious, although from my point of view it damn well should be!
Why don't we see INDICTMENTS?
Because those very same Pigmen that benefit from this game influence the folks at the helm of FASB and BASEL who write the accounting standards - and those "standards" specifically allow you to keep liabilities in these SIVs and not report them with any sort of transparency or consolidate all of this on your balance sheet!
These are the same regulators that allow you to have "dark pools" where pricing doesn't have to be reported, OTC traded swaps and derivatives with ZERO margin surveillance and enforcement (since there's no exchange or public reporting) and no public "bid", "ask" or "mark" - therefore, no public market against which to value whatever the hell you're doing today. In short, you can just make it all up - and the regulators and lawmakers, at least to this point, say its all ok!
Then we have the regulators at The Fed, OTS and OCC who are supposed to enforce Tier Capital requirements - and it sure looks like THEY don't count "off balance sheet" contingent liabilities either! Never mind that Regulation "W" appears to be able to be waived these days simply by asking!
Further, despite the fact that we had ENRON happen, and there were warnings from the outfall of that incident that BANKS and OTHER CORPORATIONS needed to be held to account for these OFF BALANCE SHEET GAMES, no meaningful regulation or enforcement occurred under Greenspan's Fed of the banking system for this VERY SAME CHARADE and Bernanke has done NOTHING about it either!
And finally, we have a law called "Sarbanes-Oxley" that says a CEO is supposed to sign a statement that his firm's financials are honest and complete and then we have FASB and BASEL II that give corporations ways to avoid producing financials that are honest and complete and regulators that seem to think this is all ok.
Does anyone else but me have a problem with this duplicitous sort of bull****?
I happen to believe that fraud in all cases - that is, producing a "financial statement" that does not in fact truthfully and completely present ABSOLUTELY ALL OF THE ASSETS AND LIABILITIES TO WHICH YOU ARE EXPOSED should expose YOU to a nice stay in a cell with Bubba.
Yes, I realize that "the regulators" currently disagree.
WHEN, not if, the epitath is written on this mess this very situation will end up being a huge part of why things got so out of hand.
'Nuff said.
Durable Goods came in at down 1.7%, much worse than the expected +1.5%.
Jobless Claims came in at 331,000; not materially different than last time around or expectations. Not much hiring - or firing - going on. No surprise there either - business are always behind the curve on the firing end as we go into recession.
New Homes Sales for September? You have to ask? They came in at dog****, 770,000 and previous month was revised down to 735,000. Of course the headline is "up 4.8%", but the reality is that it wasn't - the unrevised number was 795,000 - the "improvement" was entirely due to the revision and in addition there have been insane "giveaways" - below cost - by builders in the last month! Of course the new home "sales" are actually contracts signed, not closings, and you saw what happened to the previous month's data once "contracts" was adjusted to "closings"!
If patterns hold new home sales were down about 3%, not up. Of course next month this month's data will be revised down too. Only in the government (or the NAR) can you commit out-and-out fraud-by-numbers and not go to prison.
The builders all popped a bit on that as did the indices - I bet that won't hold. Give the short-bus riders a bit to figure out that the entire "gain" was due to revisions to the previous month and then see if the bloom remains on the rose.
The Dow Jones Business Barometer can in at -0.2% with a previous of -0.3%. Hmmmm..... so business expectations are still below trend?
Now here's something to think about guys...... the only reason we're the "place to invest" on the world stage is our alleged transparent markets - that is, we supposedly have trustworthy markets, transparency and accurate pricing.
Is that true any more?
I argue it is not.
We have cooked inflation numbers, cooked new home sales (which are really down, not up, but are reported up), rumors not only of specific stocks (e.g. Lehman) but now proven false orchestrated manipulation of the entire US equity market on the claim of imminent fed action, and a Treasury Secretary who is engaged in trying to find ways to hide even more liabilities off bank's balance sheets.
And we expect foreign investors to come here because we're "the most trustworthy financial markets in the world" eh?
Hmmmm.... why am I having a problem believing foreigners will see it that way?
If I'm an investor why don't I just go ahead and invest in some banana republic's stock market? At least there I can start the rumors and trade ahead of them too without going to prison (just try to "get me" when I'm not in the country!) while here in the US, only the "chosen few" - which doesn't include intrepid foreign investors - get that privilege.
Oh, McHugh claims we got another Hindenburg yesterday. I'm not willing to go there - on a purely pedantic basis we were a few short on the New Highs, and besides, additional hits don't improve the quality of the signal. However, what can be said is that "its not over" until the signals stop..... so perhaps it is reasonable to "count" it.
Or you could just count the one today! Yeah, we got another one.
Here's your technical!
